Margin Watch: September

October 3, 2011 by Chip Whalen

Hog
Margins improved significantly since the middle of September, due to the ongoing combination of higher hog prices and a continued selloff in both corn and soybean meal. USDA released two key reports since the middle of the month, the quarterly Hogs & Pigs inventory and the quarterly grain stocks. While the hog report was viewed as somewhat bearish, nearby futures prices have traded sharply higher over the past week. In particular, the number of hogs over 180 pounds was 3.4% above last year when the market was only expecting a 2% increase. Moreover, both Sep-Nov and Dec-Feb farrowing intentions were about 1% above market expectations and reflect no supply contraction in the first half of 2012. Meanwhile, September 1 corn stocks at 1.128 billion bushels were 166 million above the average trade forecast and outside of the range of expectations between 820 million and 1.05 billion bushels. The final ending stocks for the 2010/11 marketing year suggest significant feed demand rationing… Get the Complete Report »

Dairy
Margins generally improved since the middle of September, with the exception of nearby Q4 where a slight deterioration was noted. The main driver of improved profitability over the past two weeks was sharply lower feed costs led by a significant decline in corn futures. USDA released their quarterly grain stocks report that reflected September 1 corn stocks at 1.128 billion bushels, 166 million higher than the average trade forecast and outside of the range or pre-report expectations. The figure suggests significant demand rationing during the final quarter of the marketing year–particularly in feed and residual use–although this is somewhat dubious given livestock numbers. All the same, the corn market has declined about 27% in little over a month to the lowest levels since mid-March. Unfortunately, milk prices have likewise declined due to indications of slower demand in both… Get the Complete Report »

Beef
Margins were mixed since the middle of September, but generally showed improvement due to the ongoing sharp decline in corn costs. Profit margins for nearby marketing periods in particular improved significantly where feeder cattle costs are already fixed, but corn and live cattle prices remain variable. Corn has dropped precipitously while live cattle prices have increased over the past two weeks which has driven feeding margins well above the 90th percentile in the December, February and April marketing periods. USDA released their quarterly grain stocks report last Friday which pegged September 1 corn stocks at 1.128 billion bushels, 166 million above the average trade guess and outside the range of pre-report expectations. The bearish figure added momentum to what had already been a pattern of sharp liquidation driven by outside market factors. Meanwhile, USDA’s latest… Get the Complete Report »

Corn
Margins have deteriorated significantly since the middle of September, as futures’ prices have continued to decline. NASS recently reported final corn stocks for the 2010/2011 crop year to be 1.128 billion bushels, 166 million above the average estimate. This implies a much slower usage pace for the 4th quarter, as rising prices seem to have rationed demand. Domestically, harvest is underway, with the latest reports showing 15% of the crop has been harvested. Early harvest results show that early seeded crops have yielded better than crops planted in late-May and early June. South America has begun planting, and current weather forecasts are less-than-ideal, as dryness caused by the La Nina weather pattern continues to linger. Adding to the negative tone has been global economic uncertainty caused by the ongoing debt crisis. The U.S. dollar has appreciated by nearly 3.5% during the period, which has offset part of the advantage of lower prices to importers. Both nearby margins… Get the Complete Report »

Soybean
Margins have deteriorated significantly since the middle of September, as futures’ prices have continued to fall. NASS recently reported final soybean stocks for the 2010/2011 crop year to be 215 million bushels, 10 million bushels below the previous WASDE estimate but within the range of expectations. Domestically, harvest is underway, with the latest reports showing 5% of the crop has been harvested. As with other small grains, early seeded crops have shown better yield results; however, it is too early to know what the size of the crop will be. The trade will also continue to estimate any yield loss from the early frost in the Northern states. South America has begun planting, and current weather forecasts are less-than-ideal, as dryness caused by the La Nina weather pattern continues to linger. Adding to the negative tone has been global economic uncertainty… Get the Complete Report »

Wheat
Margins have fallen sharply since the beginning of September, as futures’ prices have continued to fall. NASS pegged the 2011 wheat crop at 2.008 billion bushels, down 68 million bushels from the August estimate. The largest decline came from the spring wheat crop which was reported to be 462.5 million bushels, down 59.5 million bushels from the August estimate. NASS also reduced total harvested acres by 200,000 due to adverse weather throughout the growing season. Winter wheat planting has gotten off to a slow start as well, with current progress at 26% planted versus a 10-year average of 37%. Adding to the negative tone has been global economic uncertainty caused by the ongoing debt crisis. The U.S. dollar has appreciated by nearly 3.5% during the period, which has offset part of the advantage of lower prices to importers. Both nearby as well as deferred 2012 margins… Get the Complete Report »

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